Not Every Stock is Meant to Be Traded

If you’ve read our other post, “Investing is Not Trading,” then you understand that picking stocks that are tradeable is the most important factor to making a successful trade.

Stocks have their own personalities, just like people. Some companies are young and adventurous; their stock reflects that personality and grow fast in a very short timeframe. Some companies are in their senior years – they move slow but are very wise because they’ve been through everything. They have the reliability of a sunrise. You may be bullish both these companies, but only one may make a good trade.

A bullish stock that takes twenty years to move 20% is not a good trade. But it may make a great long-term investment stock, especially if it’s paying a dividend that gets increased every year that’s 4x what you could get at a bank savings account.

Stocks that make good trades have a good amount of volume (e.g. an average daily volume over 100K) and a good amount of volatility. You’re looking for big price moves (e.g. minimum 5% so you can get in and out relatively quickly).

Even once a stock meets these most basic criteria of being considered “tradeable,” it does not mean that you should immediately place a trade that same day. While this sounds obvious, many traders make the mistake of getting overly excited about a new stock they found because it shows up on their screener, thinking it’s time to enter a trade immediately. This could not be further from the truth – fundamentals, where the price is located relative to its long and short-term patterns are all considerations that must be reviewed before placing that trade.

Don’t try to force a stock to be something it’s not. The market dictates its natural flow; your job is to identify that flow and use it to your advantage.